Rachel Reeves’ £60bn Pension Plan Sparks Fears of Skyrocketing Government Borrowing Costs

In a Report by express, Chancellor Rachel Reeves is likely to announce plans this week to let certain pension funds (called defined benefit or DB schemes, also known as final salary pensions) invest their extra money around £60 to £100 billion into the UK economy.

These pensions are often seen as very secure because they promise a fixed income in retirement, no matter how much someone saved during their working life.

These pension schemes, which are usually not offered to younger workers, typically invest in safer options like government bonds (gilts) and high-quality corporate bonds. However, the government wants them to invest more in smaller UK businesses and startups to help the economy grow.

This idea isn’t new. Jeremy Hunt, the previous Chancellor, suggested similar plans in July 2023. Now, Rachel Reeves is expected to include these plans in a new pension bill in the coming months.



Pension experts, including those who manage these schemes, are cautious. They want to make sure that any new rules forcing them to invest in riskier assets won’t harm their responsibility to protect the money of employees and retirees.

Ian Mills, a pensions expert at Barnett Waddingham, said it’s good news that the Chancellor is looking to reform how companies use their pension surpluses. However, he warned that these changes could have unintended effects.

For example, many final salary pension schemes are being bought by insurance companies, which don’t invest as much in government bonds (gilts). If pension schemes stop buying gilts, it could make it more expensive for the government to borrow money.

Mills added that while the reforms could help the economy, the government needs to be careful not to go too far. If pension schemes sell too many gilts, it could push up borrowing costs for the government, though this might be partly balanced by higher tax revenue from pension surpluses.